Canadians pay up to 79% more than consumers in New Zealand for commonly-used medicines, largely because Canada’s provincial drug plans are fragmented and not set up to negotiate bulk discounts from manufacturers, concludes new research by the Centre for Health Services and Policy Research at the University of British Columbia, Canada.

Spending on prescription drugs in Canada topped C$21 billion in 2006, up C$1.4 billion over the previous year, and increased by an average 1.2% annually during 1997-2004. In contrast, price negotiations with manufacturers have enabled New Zealand to virtually freeze drug spending, while still covering an increasing volume of prescriptions in recent years, say the researchers.

Canadian pricing of new drugs is governed by Patented Medicine Prices Review Board policies, which allow prices for new products that substantially improve treatment to be matched to average prices in the USA and six European countries. If the new drug is less innovative, its price cannot be higher than those of existing drugs to treat the condition.

In contrast, the Pharmaceutical Management Agency of New Zealand (Pharmac) is the single national agency which negotiates drug prices and bulk purchases on behalf of the country’s four million residents. Pharmac has been given much of the credit for New Zealand’s “remarkable success in managing pharmaceutical expenditure while maintaining universal access to medically-necessary pharmaceuticals over the past 14 years,” according to the study. “The New Zealand government will only pay for a drug if it is clinically effective and priced competitively,” says lead author Steve Morgan, who adds: “these cost-management tools are also used by private drug plans in the US, by governments in Europe, and interestingly enough, by every hospital in Canada.”

The study compared Canadian and New Zealand prices for four commonly-used categories of medicine, which together account for around a third of Canada’s retail spending on drugs each year. As there are no Canadian sources of national drug prices and consumption information that would be comparable to the Pharmac data, the researchers used a recent study of drug costs in BC. They found that:

– statins, used in the management of cholesterol, cost 56% less in New Zealand than in BC, with branded products’ prices being 45% lower and generics 91% less;

– angiotensin-converting enzyme (ACE) inhibitors for high blood pressure which are listed on the NZ Pharmaceutical Schedule cost “a fraction” of what they do in BC. Branded products are 78% cheaper and generics cost 93% less, averaging out at a national difference of 79%;

– selective serotonin reuptake inhibitors (SSRIs), used to treat depression; leading products are only listed generically on the NZ Schedule and are priced 32% lower than in BC. When their New Zealand prices are compared to the average of both branded and generic versions in BC, the difference rises to 38%; and

– proton pump inhibitors (PPIs) for the treatment of ulcers/acid reflux which are listed in New Zealand cost an average of 15% less there than in BC, while the one off-patent brand is priced 91% lower.

Overall, the average New Zealand price of comparable brand-name products in all four categories was found to be 45% lower than the BC price, while the average difference for generics was 58%. Finally, when averaged across brand and generic versions of drugs available in both markets, prices paid in New Zealand were 51% lower than those paid in BC, and this price difference applies to over half of BC’s expenditure on these four drug classes.

“This results in overcharging of at least C$2 billion a year,” said Dr Morgan.

The researchers propose that Canada could develop several “Pharmac-like” funding programmes, under which all Canadians, regardless of age or income, who suffer from specific conditions would receive coverage for their treatment. Manufacturers would receive significant market access under such programmes, if they provided their drugs at competitive prices that reflect value for money. The four conditions studied could be among those that any such national programme should first target, and the savings generated from the programmes could then be re-invested in the expansion of benefits for other treatments, including newer breakthrough drugs or treatment for rare but serious conditions, the authors suggest.

Adopting such a system would not only provide equitable access to medicines but also improve incentives for R&D, says Dr Morgan, who adds that, by refusing to make manufacturers compete on price, Canada’s current system gives them incentives “to simply imitate old drugs rather than create truly innovative medicines.”

– In its contribution earlier this year to the BC government’s Conversation on Health about the future of the province’s health care system, Rx&D, the organisation representing research-based drugmakers in Canada, had pointed out that increasing drug spending by C$1 decreases the use of non-drug, non-physician health care resources” by C$1.48, while leaving patient outcomes unchanged. The industry group called on the BC government to: create a new and effective forum where industry can have an effective dialog “based on mutual respect;” and invest in the future, by moving drug rationing policies and embracing “the positive impact innovative medicines can have on the overall health care system and on the development of BC’s knowledge-based economy.” By Lynne Taylor